Page 9 - Balancing Priorities

BALANCING PRIORITIES: Preservation and Neighborhood Opportunity in the Low-Income Housing Tax Credit Program Beyond Year 30 Ownership is another important property- level factor that in uences whether LIHTC properties continue to operate as affordable housing. LIHTC properties with non-pro ts in the ownership structure are less likely to convert to market-rate (Meléndez, Schwartz, & Montrichard, 2008). A non-pro t or mission- driven owner may be less interested in maximizing the return on their investment in a strong housing market than in protecting the availability of affordable housing for low- income households. For-pro t ownership is a well-documented risk-factor for market- rate conversion in other affordable housing programs (Ray, Kim, Nguyen, & Choi, 2015; Reina & Begley, 2014; Finkel, Hanson, Hilton, Lam, & Vandawalker, 2006). With regard to location, pro t-minded owners in more desirable neighborhoods and tighter markets have a greater incentive to reposition their LIHTC units to market-rate housing with higher rents after the end of affordability restrictions, or to convert to another use such as owner-occupied housing, because the market will allow for it. Owners of LIHTC units in these locations likely face less dif culty than owners in weaker markets in addressing maintenance and rehabilitation needs given the potential for stronger rental income. Tenants in LIHTC properties in tighter rental markets or more desirable neighborhoods are at greater risk for rent increases following the end of affordability requirements than tenants in weaker markets. Tenants, especially those with the lowest incomes and without additional rental assistance, are likely unable to absorb the nancial impact of higher rents and are vulnerable to displacement. LIHTC tenants are not provided Tenant Protection Vouchers as they are when HUD-assisted project-based housing changes affordability status, such as when a property opts-out of a Section 8 affordability contract. If forced to move, securing a different affordable home in the same community could pose a challenge. Tenants with portable rental assistance, such as HCVs, may have some limited protection from cost-burdens and displacement. In strong markets, however, market-based rents might exceed voucher payment standards. Beyond market-based rents, another challenge for voucher holders is that private landlords of unsubsidized housing can often discriminate against them and may be less inclined to accept vouchers when units are in high demand (Graves, 2016). NATIONAL LOW INCOME HOUSING COALITION AND THE PUBLIC AND AFFORDABLE HOUSING RESEARCH CORPORATION 9 In less desirable neighborhoods or softer markets, pro t-minded owners have less of an incentive or lack the ability to reposition LIHTC units as unaffordable market-rate housing at the end of affordability restrictions, yet preservation remains a potential challenge. Research on LIHTC at Year 15 suggests that the most signi cant preservation challenges arise in economically depressed areas with weak housing markets, where limited rental income creates challenges for nancing maintenance and rehabilitation needs (Schwartz & Meléndez, 2008). Absent additional subsidy, LIHTC units located in the least desirable neighborhoods and softest markets are potentially at the greatest risk for physical deterioration, especially after 30 years of use. Owners of LIHTC units located in less desirable, but gentrifying neighborhoods, however, might have a signi cant opportunity to invest in their properties if they can charge higher rents, or convert to another use.